Thursday, August 30, 2012

Away from the stifling media crush, staid Ben Bernanke is dashing Reverse Robin Hood, lackey pawn of the Neofeudalist Financial Lords who shamelessly steals from the poor to give to the parasitic super-rich.

Amidst electioneering chatter about a "reverse Robin Hood" who steals from the poor to give to the rich, it's important to identify the real Reverse Robin Hood: Ben Bernanke and his Merry Band of Thieves, a.k.a. the Federal Reserve. It's especially appropriate to reveal Ben as the real Reverse Robin Hood today, as the Chairman is as omnipresent in the media as Big Brother due to the Cargo-Cult confab in Jackson Hole, Wyoming.

Please answer the following questions before launching a rousing defense of the All-Powerful Fed and its chairman:

1. What is the nominal yield on your savings account, thanks to the Fed's zero-interest rate policy (ZIRP)? (Answer: 0.25%)

2. What is the inflation-adjusted yield on your savings account? (Answer: - 2.25%)

3. What is the rate of interest the Fed charges banks for "free money"? (Answer: 0%)

4. What is the average interest rate for bank-issued credit cards? (Answer: 14.52%)

5. What is the interest rate for student loans? (Answer: 6.8%, and 7.9% or 8.5% for PLUS loans)

6. Does the Fed pay interest on the funds banks have borrowed from the Fed for 0% and then deposited with the Fed? (Answer: yes)

7. Exactly how has the average American worker benefited from the Fed's policies?(Answer: interest on credit cards has declined from 19.9% to 14.52%, if the worker has outstanding credit, which few of the bottom 90% do.)Theoretically, workers could re-finance their homes at lower interest rates, but the vast majority are either underwater or no longer qualify. Ben and the Merry Thieves love pulling Catch 22.

8. How has the average parasitic Neofeudalist Financial Lord benefited from the Fed's "rob the poor to give to the rich" policies? (Answer: Handsomely. The top 1%'s income and net worth has soared as Ben and his Merry Band of Thieves have stripmined interest income from the poor and pension funds and diverted it to the rich.)

9. Have the Fed's Reverse Robin Hood policies narrowed income disparity in the U.S.?(Answer: no--income disparity has widened further as a result of Fed goosing of risk assets.)

10. How many of the nation's 14.5 million unemployed have gotten jobs as a result of Fed policies who would not have gotten a job if the Fed had been abolished in 2009?(Answer: unknown, but the best guess is 17, including Bennie the part-time janitor, with a statistical error of + or - 17.)

11. How does Ben the Reverse Robin Hood justify his thievery? (Answer: he doesn't. Officially sanctioned propaganda casts him in the role of selfless do-gooder, protecting saintly Neofeudalist Financial Lords from restless debt-serfs.)

Listen up, debt-serfs, you have it good here on the manor estate. You get three squares of greasy fast-food or heavily processed faux-food a day, and if Reverse Robin Hood and his Merry Band of Thieves is ripping you off it's for a good reason: the predatory Neofeudalist Financial Lords need the money more than you do, as they have a lot of political bribes to pay: it's an election year, and the bribes are getting increasingly costly. Poor things, we're sure you understand. Now go back to work or watching entertainment (or "news," heh) and leave the Lords alone.

An open plea to William Banzai: dear Master of the visual arts, could you please perform your magic and transform Ben Bernanke into the Reverse Robin Hood leading his Merry Band of Bankster Thieves? I would be most grateful if you could apply your powers to this imagery.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Linear extrapolations based on the "one-off" commodities/debt bubble boom of the past 20 years fail to account for the non-linear dynamics of technology and changes in behavior.

The causal relationship between scarcity, demand, and price is intuitive. Whatever is scarce and in demand will rise in price; whatever is abundant and in low demand will decline in price to its cost basis.

The corollary is somewhat less intuitive, but still solidly sensible: the cure for high prices is high prices, meaning that as the price of a commodity or service reaches a threshold of affordability/pain, suppliers and consumers will seek out alternatives or modify their behaviors to lower consumption.

We talk about the demand for commodities being elastic or inelastic, meaning that some commodities such as oil and grain are so essential that the demand for them is less elastic than demand for discretionary goods and services. Despite its essential role in the global economy, the demand for oil is not fixed; as prices rise, demand falls. Since all commodities are priced at the margin, the price of oil is actually quite volatile, despite the supposed inelasticity of demand for oil.

Scarcity is only one price input. Another is the cost basis of the good or service. If shale oil costs $50 per barrel to extract, refine, and ship to market, no supplier can sell it for less than $50/barrel for long.

This leads to an apparent paradox: Demand can be robust and supplies can be abundant, yet prices can still be high, but not high enough to trigger a profitable search for alternatives if the “pain” felt by consumers does not reach a behavior-modifying threshold.

There is another input to price: opportunity cost, a concept that describes the relationship of scarcity and choice. If grain rises in price, consumers could choose to eat less meat, as grain is the primary cost input to the price of meat. The opportunity cost is what they could have done with the money saved by eating less expensive vegetable protein rather than continuing to buying high-priced meat.

The point here is that scarcity remains a critical input to the price of goods and services, but the cost basis and opportunity costs are equally important inputs.

Since the world’s resources are finite, it’s easy to extrapolate linear demand and predict much higher prices for ultimately scarce commodities. But such predictions often fail to account for behavioral and technological changes that lower or shift demand.

Let’s say that copper and cement skyrocket in price as demand for new housing surges globally. In a linear projection of demand and supply, we might predict higher prices for new homes far into the future. But the supply of housing is not as inelastic as many imagine; for example, the density of residents per dwelling is remarkably low in the U.S., and so a very modest increase of density (i.e., more people living in existing dwellings) has an enormous impact on demand for new housing.

The opportunity cost of buying a home has also changed radically since the real estate bubble burst. Potential buyers are calculating the opportunity cost not just in terms of mortgage payments but in terms of being stuck in a locale should home prices decline further. Owners of homes with empty bedrooms are realizing that the Web has simplified access to a large market of potential renters.

Linear projections of higher prices based solely on demand and scarcity fail because they do not include feedback loops from behavioral options, opportunity costs, technological innovations, and the cost basis of goods and services.

Access and Ownership

Much of the supposedly inelastic demand for goods is based on the presumptive value of ownership. We presume future generations will covet owning a vehicle that requires enormous quantities of materials to manufacture, maintain, and fuel, and that they will demand an expansive home that sucks up stupendous resources to build and maintain.

But what if future generations of consumers instead prefer 'access' to ownership?

Sharing (renting) existing resources for transport and housing would slash demand for costly “money/resource pits” such as vehicles and houses, and demand for the commodities used in their manufacture would decline, possibly seriously.

It is not inconceivable that a large household of eight adults could manage quite well sharing a single vehicle and using public transport, even if they would at one time have purchased eight vehicles (one for each adult) when each lived in their own dwelling.

This trend of eschewing ownership of autos and homes is already well-established among young people in Japan, and is an increasingly visible trend in the U.S. and other developed economies.

Access to transport and housing is sufficient; ownership is not necessary. This reality (which can be described as the systemic reappraisal of the opportunity cost of ownership) will have a profound impact on demand for ultimately scarce commodities.

Income and Scarcity

There is another reason that ownership of resource-intensive assets such as autos and houses is declining on a structural level. Incomes are declining for all but the top 10% of households, and this trend is likely to accelerate as financialization’s self-destruct sequence pushes the global economy into a deep, and very likely prolonged, recession.

Many analysts (including me) have discussed this decades-long decline in the purchasing power of labor. The primary takeaway is that this trend is the result of structural forces that cannot be “fixed” by a political policy du jour or central bank intervention. I have described this misalignment of Central Planning goals and tools many times. The tools available cannot possibly accomplish the tasks at hand. Metaphorically speaking, central banks are trying to pound nails with handsaws, as they have no hammers in their toolboxes.

For many workers, there simply won’t be enough income to indulge in the ownership model. The cost in cash and opportunity are too high.

This leads to a profound conclusion: What will be scarce is income, not commodities. The corollary is equally profound: All the capital that has been sunk into pursuit of commodities and ownership-model assets such as homes and vehicles is in danger of becoming trapped capital. That is, if there is little demand for commodities and resource-intensive ownership-model assets, there will be little demand for these capital-intensive assets.

Another way of describing trapped capital is to say that it is illiquid, meaning that when you place the asset for sale on the open market, there are few buyers at any price above liquidation value.

What Will Be Scarce: Liquidity and Reliable Income Streams

If we follow this chain of evidence and reasoning, we conclude that what will be scarce going forward are not commodities or resource-intensive, ownership-model assets but liquidity and reliable income streams. Ownership-model asset bubbles and the commodity/equity bubbles that arose as a result of ownership-model demand have lumbered off into the sunset.

This realignment of scarcity, demand, cost basis, opportunity cost, technology, and behavioral choice has important implications for investors. In Part II: Why Local Control is the Best Way to Preserve Wealth, we study these implications and identify the best use of investment capital for the arriving future.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, Greg G.($5/month), for your exceedingly generous subscription to this site-- I am greatly honored by your support and readership.

Wednesday, August 29, 2012

A rotten-to-the-core system continues grinding on because it has effectively co-opted (captured) the professional/managerial class with promises of phantom wealth and security.

The Status Quo depends on the professional/managerial class to maintain order and keep the machine running. Since this class has more options in life than less educated lower-income workers, their belief in the fairness and stability of the Status Quo is essential: should their belief in the Status Quo weaken, so would their commitment to positions that require long work days and abundant stress.

The corollary to this structural need for highly motivated, dedicated people to work the gears is that if their belief in the machine fades, then the machine grinds to a halt.

This belief is far more vulnerable than the Powers That Be seem to understand.In a way, a belief in the value, transparency, trust and reciprocity of the System is like a religious belief. The converts, the true believers, are the ones who work like crazy for the company or agency. And when the veil of illusion is tugged from their eyes, then the Believer does a reversal, and becomes a devout non-believer in the System. He or she drops out, moves to a lower position, or "retires" to some lower level of employment.

When the most dedicated servants of the system awaken to the realization that they are not benefitting from their service as they'd once believed, that their near-religious faith in the System has been bruised by the grim knowledge that the few are benefitting from the lives and sacrifices of the many, then t

hey simply quit, or move down the chain to an undemanding position.
At that point--a point I anticipate will come to pass in the next 5-10 years--then the Elites' machine grinds to a crawl. People don't have to throw their bodies on the gears of the machine--they just have to stop believing, stop taking that promotion, and stop wanting to trade their entire lives for a thin slice of more more more.

The belief that the Status Quo is fair, just, stable and sustainable is wearing thin,and so the response of the Neofeudal Status Quo has been to "capture" the essential managerial/professional class and effectively chain them to their grindstones.

This phenomenon of "capture" is discussed in the following essay by correspondent Lonn Gary Schwartz, O.D.:

Many are familiar with the concept, regulatory capture, a term generally referring to an industry gaining control over, or capturing, those agencies mandated to regulate their business activities/conduct. A common example is Wall Street and the Too Big To Fail banks that, over the past several years, have been accused of capturing their appointed federal regulators.

I would like to suggest that a similar process applies to the entire American professional class, those highly educated, advanced degreed group of intellectuals designated –legislated - to administrate The System. Except in this case, it is outside - corporate/government - influence that has altered the dynamic of the “self-regulated” professions.

Although this professional capture mostly involves the professions’ elite, once these “thought leaders” capitulate to the needs of the predominant external interests, the bulk of their flock quickly fall into line, understanding that these are not times when fighting The System leads to highly satisfactory outcomes.

Instead of carrying out their professional responsibility of self-regulating their field of expertise - i.e. protecting the interests of their patients/clients/customers - these doctors, lawyers, accountants, educators, etc., have been - in many cases - manipulated, both from without and from within, at times acting completely antithetically to their legislated responsibilities.

Let’s take health care as an example, although this would apply to all professions.
It should come as no great surprise that with the decades-long corporate/government takeover of the American health care system, individual health care providers lost a great deal of professional autonomy.

As this forfeiture revealed itself in decreasing control over patient-care as well as declining real incomes, it becomes easier to understand how professional and economic pressures began to subject health professionals to a variety of external influences.

Accordingly, outside control in health care emerged in several forms. Perhaps the most influential was - and still is - the insurance company provider agreement, a contract that spells out exactly what is expected of the practitioner in terms of clinical care and, in the same breath, stipulates compensation levels.

In other words, not only has the insurance company - in many cases - determined for the practitioner what is best for their patients, but they have also decided how much they are going to be reimbursed for providing these services. They have, de facto, taken over the health practitioner’s business model, a nearly complete loss of both professional and fiscal autonomy.

Whether this can actually work for individual providers - or their patients - seems lost on the insurance companies, as they have judged what works best for their corporate bottom-line, and since they control much of the market, what they say, goes. The result is that both the patient and doctor lose, the insurance company wins.

The greatest degree of external control, though, is exacted by government, whose laws, regulations, taxes, fees, and all the rest, have not only created a bureaucratic nightmare but has sanctioned - through regulation - the private insurance companies and their anti-free market practices [see Obamacare].

Therefore, the current corporate-government coalition in health care has created the worst of all worlds: distorted markets, incredible inefficiencies, skyrocketing costs, tremendous mal-investment, a health [sick] care system designed in the primary interests of ROI [return on investment] in the corporate sector, and a loss of professional control, i.e. professional capture.

The sad reality is - and as a direct result of the above policies - that it has become incredibly difficult to practice ethically and profitably on any level commensurate with the cost of a professional education/investment in a quality practice environment. Indeed, in an increasing number of health [sub] specialties, the insurance companies and government have financialzed and regulated health practitioners right out of existence!

In other words, booming corporate profits and an ever expanding government presence in health care have come at the expense of the patient - increasing insurance premiums/taxes - AND the doctor - loss of professional control/decreasing reimbursements - not to mention declining health care quality levels.

Although the government-sanctioned corporate take over of American life has certainly given us a nearly unlimited selection of mass produced consumer products, at what price has this material frenzy come?

The cost has been the obliteration of our national moral compass, elevating ROI above personal ethics to the point where not only have the professions been sacrificed to the alter of maximum corporate profit, but our very sense of who we are as Americans is being seriously questioned.

When it becomes nearly impossible to do business because of the plethora of laws, regulations, fees, taxes, financialization, and all the rest, highly trained, well-intentioned professionals succumb to the financial pressures and subject themselves to the degradation/humiliation of acquiescing to a system run by hooligans adherent only to the legally mandated corporate bottom-line.

Wealth creation based on widely accepted moral standards is what made the United States the great country it is, but if you can not practice your profession/carry out your business in a way that expresses your true professional nature, treats your patients/clients/customers with high levels of respect, while at the same time, deriving a socially acceptable return on your investment in a professional education/practice capital investment, then what’s the point?

It is time for the leaders of the professions to stand up and say, “ENOUGH IS ENOUGH!!” It is within the power of the professions to bring serious change to this country by acting in the direct interests of the American people.

Whether it is in health care, the legal system, corporate/government accounting, education, or any other professions, massive change is necessary to restore a balance to our national purpose.

It simply takes COURAGE and LEADERSHIP, and a willingness to look at the simple truth that it is time to make the interests of all Americans, PRIMARY.

It is time for those in positions of power and influence to put away the toys and pick up the tools that will enable us to rebuild the foundation of this great country so that future generations of Americans can enjoy what we have almost completely squandered. The American people need help, and they need help NOW.

The process of capture involves many of the dynamics I have long discussed in the blog and in my books. Wealth is power, and if you want a slice of the wealth then you toe the line and keep quiet. There's a word for for this "voluntary capture": co-option.

At every juncture where a decision to opt out (quit) or continue serving the Status Quo arises, the believer is co-opted by their desire to "stay in the game" for the promised slice of wealth and security. The risk-return calculus is heavily skewed to complicity, because the options for wealth and security outside the machine are meager and loaded with risk.

It is my contention that the wealth and security promised by the machine in exchange for subservience are phantom, and the risk of the promises not being kept is much higher than generally assumed. ironically, those who opt out and accept the risk and lower compensation are actually more secure and much wealthier (in terms of well-being and autonomy) than those who submit to voluntary capture.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, Karl L.($10/month), for your outrageously generous subscription to this site-- I am greatly honored by your ongoing support and readership.

Monday, August 27, 2012

Complicity reigns supreme as everyone benefiting from a scam keeps quiet about everyone else's skim lest their own share of the spoils fall under the harsh light of inquiry.

The uncomfortable truth is that America has become a nation of skimmers and scammers. The rot runs deep not just in the upper reaches of the financial and political Elites, but in the bottom 99.5% as well.

America can now be summarized by this phrase: "don't call out my scam and I won't call out yours." In other words, all the skimmers and scammers have become complicit, not just in protecting their own scam from the light of day, but in protecting everyone else's scams, too, lest those who lose their swag unmask someone else's scam in revenge.

Examples of skimming and scamming abound in finance and government. It's almost tiresome to even list examples; fortunately for us, tireless truthseeker "George Washington" has amassed a list of bank fraud and malfeasance (reprinted by the equally indefatigable Barry Ritholtz).

It's easy to skewer the financial and political Elites' abuses of power, but few look at all the rot below. The fraud and embezzlement-riddled mortgage market of the previous decade included not just investment bankers but non-Elite Americans who lied about their income, debt, and other material facts in order to obtain a fraudulent mortgage.

Another "middle class" scam is practiced by public workers nearing retirement. (Please don't claim this doesn't happen, I have first-hand accounts from cousins with 30-year careers in fire and police departments.) Since the pensions are based on the top three years of pay, soon-to-retire workers pile up the overtime to amass much higher pay in their last years. Everyone involved helps make this happen because they expect to pull the same scam when their time comes.

To sweeten the already enlarged pension pot, they then declare (with the seal of approval by a complicit doctor) that their work left them with a disability of some sort (a heart murmur is apparently a favorite excuse) that makes their pensions tax-free. (Millions of "the rest of us" also have heart murmurs. Where's our tax-free pensions?)

In the lower rungs of the social-financial order, claiming disability is high on the list of skims and scams, as evidenced by the astonishing rise in the number of suddenly disabled people once the 99 weeks of unemployment ran out. Food stamps can be applied for online, and despite bolded warnings of severe penalties for misstating facts, it's safe to assume that "fudging the numbers" is unlikely to lead to any investigation or prosecution.

Two weeks ago we stopped by to see the new home a childhood friend bought in an upscale neighborhood. As we were talking he proudly let me know that he was still on the PG&E CARE program (that cuts his PG&E bill in half). It turns out that a few years ago after taking some losses on investments he had a taxable income for the year of ~$25,000. Soon after filing he got a letter (at his ~$2 million home) about the CARE program. He filled it out with his actual 1040 income to see what would happen.

To his surprise he was accepted into the program and his PG&E bills dropped in half (saving him over $1,000 a year). He said he was certain his savings would end when he called to transfer service to the ~$3 million home he just bought, but no one ever asked about his income and he is still in the CARE program. He said he has told a lot of people (that make a lot of money and live in $1mm + homes) about the program who have either lied about their income (there is no system to check) or put the PG&E account in the name of a nanny or cleaning lady to get in the program to save money.

The justification for all this skimming and scamming is always the same: "everybody else is doing it." As noted yesterday, self-service and self-justification are the ultimate American gods that we now worship, but nonetheless the moral disintegration reflected by this rationalization is still remarkable.

There is another dynamic: desperation. Beneath the placid surface of the "recovery," millions of people are desperate and feel that skimming, scamming and lying are their "only hope" to 1) keep what they have 2) gain much-desired upper-middle class perquisites or 3) keep body and soul together and not end up living in a cardboard box.

These dynamics of moral rot and desperation have created a society in which the spirit of the law is blatantly violated but "all is well" as long as the letter of the law has only been scratched. We see this in every level of society, from legalist parser in chief Bill Clinton's obtuse defense, to the classic phrase that the "dancing" (i.e. the fraud and embezzlement) goes on until the music stops, to the disability recipient who "does whatever it takes" to get free money for life.

Expectations are impossibly high. It's no longer enough for the Federal Reserve to issue a $1 trillion injection of financial cocaine to the stock market every year; now the market needs a $1 trillion injection every six months lest it crash.

Parents want their children to join the top 10% and enjoy a security and wealth that is as illusory as the pathway they have been sold: if only you get into an Ivy League university, if only you get a 4.+ grade point average, if only you earn a law degree--yet none of these guarantee anything beyond an enormous expense and a shot at a roulette wheel with too many players and not enough winners.

Rather than accept that the postwar boom based on cheap abundant oil, industrialization and globalization is over, and the financialization bubble of the past 30 years cannot be re-inflated, we continue to maintain unrealistic expectations of an economy with structural imbalances, rising friction and declining surpluses.

It is no surprise that economic hardship leads to increases in crime and social unrest. The wave of instability resulting from economic decline has repeated throughout history, a process described by the seminal book The Great Wave: Price Revolutions and the Rhythm of History. In this sense, moral rot is to be expected as economic surpluses vanish and entire economies must live within means that have shriveled for structural reasons.

Can an economy that has become dependent on lies, misrepresentation, "fudging" of numbers, fraud, embezzlement and a multitude of skimming and scamming operations escape the moral and financial black hole it has created? The self-evident answer is "no."

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, David P.($50), for your outstandingly generous contribution to this site-- I am greatly honored by your ongoing support and readership.

Sunday, August 26, 2012

The Federal Reserve is a wealth transfer machine, skimming wealth from the productive many and transferring it to the parasitic few.

Today I launch a series entitled "The Rot Runs Deep" that examines the moral and financial rot at the core of American finance, politics and culture. We have reached a unique junction of American history: the confluence of Big Lie propaganda, neofeudalism and the worship of false financial gods.

The Big Lie propaganda machine of corporate media and the Central State has perfected Orwell's nightmare vision of centralized media and a fascist centralized State which turn lies into self-serving "truth."

Since the Federal Reserve is once again expected to "save" a crumbling, exploitative Status Quo, let's use the Fed as an example. The propaganda machine would have us believe that the Federal Reserve, the privately owned central bank of the U.S., has "saved" the Status Quo from financial ruin on numerous occasions by "smoothing out" the business cycle (credit expands and contracts) and by "stimulating aggregate demand" by lowering interest rates and pumping money into the economy (quantitative easing).

We are constantly prompted to worship the Federal Reserve's supposedly god-like powers to rescue a corrupt and venal Status Quo from the black hole of recession and collapse,and this Big Lie masks its real nature: The Fed is nothing but a parastic wealth transfer machine, skimming wealth from the many and transferring it to the few.

In effect, the Fed is the "enforcer" of neofeudalism in America: the feudal Lords of Finance control the for-sale political system and skim tribute from the 99.5% toiling in the fields below their castles. The Fed enforces this parasitic transfer of wealth by manipulating interest rates to enrich the banks and provides "free money" to the Financial Lords which is then used to buy assets and lend at interest.

The mechanisms of the Fed's parasitic transfer of wealth are well-known. Here's one: the Fed "loans" money to the Feudal Lords at 0% interest. the Lords then loan this free money out to peasants, students and other debt-serfs at high rates of interest. The interest "earned," courtesy of the parasitic Fed, is theirs to keep.

If they can't find enough debt-serfs who can pay more interest, they can always deposit the free money back at the Fed and earn interest from the Fed itself.

Here's another: the Fed "loans" free money (0% interest) to the Financial Lords, who then buy low-risk long-term U.S. Treasury bonds paying 3%. When the Lords spot a better skimming opportunity, they sell the bonds to the Fed, who buys the bonds from the Lords as part of its "Operation Twist."

Peasants who have arduously saved up capital (cash) earn next to nothing as a result of Fed policy, but the Fed insures Feudal Lords earn a guaranteed return on money they obtained for free. The suppression of interest income to near-zero (a negative return once inflation is factored in) is a massive transfer of wealth from savers to Fed-backed speculator Lords and banks.

As a direct and intentional result of the Fed's quantitative easing, huge sums of "free money" slosh into the "risk-on" stock market, where the money provides liquidity for the Lords' high-frequency trading (HFT) skimming operations.

The losers are the peasants who have been locked into 401K plans that divert their earnings into the stock market, where the Lords' HFT can skim billions from the 401K plans.

The Fed guarantees the Lords free money, and also supports the Financial Lords' speculative bets in the stock market; whenever the market threatens to swoon, the Fed intervenes and manipulates the markets up to levels where the HFT machines will trigger momentum buying.

What do we call a power center that enables and enforces neofeudal exploitation and predation? We call it evil. The Federal Reserve is a force of evil that should be abolished at once. Its purpose--enabling and enforcing a neofeudal transfer of wealth from the productive many to the unproductive, parasitic few--is evil. Those within it are serving evil. Those who defend it are serving evil. Those who worship its power are serving evil. Those who mask its true nature are also serving evil.

In a society and culture that has lost its moral compass, a culture of greed, self-serving lies and corrupt vested interests, the word "evil" has lost its power. It has been reduced to a cartoonish label, a cynic's smarmy joke.

The Soviet Empire was evil, and President Reagan was mocked by "sophisticates" for labeling our global competitor evil. In the relativist terms of propaganda, the only difference between the U.S. and the U.S.S.R. were two letters; this is the mindset created by a reliance on propaganda. There is no good or evil, there is only the paycheck "earned" by serving one master or another.

Anyone daring to label the widely worshipped Federal Reserve as a false god, a purveyor and enforcer of predation and exploitation, will also be mocked by presumptive "sophisticates" of the many Cargo Cults that depend on the neofeudal skimming, exploitation and lies for their own share of the spoils. Their self aggrandizement and share of the swag demands obedience to the Fed's godlike power to skim from the many and distribute to the few.

Since they are among the few, they will do anything for their Master, the Federal Reserve, for it has the power they worship: the power to transfer vast wealth from the productive many to the parasitic few.

Should we be surprised that the parasites in the media, academia, politics and finance support the evil that enables their own predation and exploitation? Of course not, for self-service and self-justification are the ultimate American gods.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, Harry P.($50), for your exceedingly generous contribution to this site-- I am greatly honored by your support and readership.

Saturday, August 25, 2012

While we're waiting for global markets to unravel in a paroxym of frantic official lies and flustered reassurances, let's turn to this week's chapter of my serialized comic novel "Four Bidding For Love." (Those who find absurdist humor and adult situations offensive, please read no further.)

Alexia's voice fairly exploded out of the tiny device. "What did that horrid old beggar say to you?"
"To watch out for you."
"And what's that skinny little broad demanding?"
Robin did not like his friend's tone and he lowered his own voice. "She wants a set of movie posters and the toaster."
"A set? That's insane! Absolutely not!"
"She knows you want this poster, and is driving a hard bargain."
Alexia bit back an oath. "Then just forget it. I'm not giving her three posters to get one."
Robin murmured, "Don't you have any low-value ones we could pass off as valuable?"
Kylie's eyebrows arched in bemused dismay at his suggestion as Alexia clucked, "That might work. Let me think."
"Give me a little time here to work on her," Robin said, and then rang off.
As if on cue, Kylie's phone chirped and she gave Robin a knowing grin as she answered.
"I know you're all lovey-dovey with Robin now," Ross's voice said harshly. "So what's the deal—or have you forgotten about that?"
"The deal is front and center," she answered grimly. "He'll give you the T-20, but he wants the poster and another toaster—not as good as the T-20, but a good one."
"Right. No way in Zeus's great Heaven am I giving up a Toast-o-Master and the poster. You're caving in, aren't you? I should have asked Dewey to do this."
"Just give me a little time here," Kylie muttered. "Don't you have some old thing that looks like it's valuable but isn't?"
"Ooh, I like your thinking," Ross purred. "The Acme Toastway looks very good but isn't worth more than a decent steak."
"I'm on it," Kylie said. "Now stop bugging me."
She snapped the phone closed and then turned to the waitress. "We'd like a dessert menu, please."
"The creme brulee here is wonderful," the waitress enthused, and Kylie said, "Sold." Robin chimed in, "Make it two," and the negotiators were left to gaze in amusement at the others' trickery.
"I should cut to the chase and just demand her first-born child," Kylie said, and Robin laughed. "A very fair bargain: a child for a movie poster. And I should just ask for a house in trade for this fabulous T-20Z toaster."
"I'll have to consider that very seriously," Kylie intoned, and then guffawed in a most unladylike manner.
"I would think Miss Alexia will be very grateful indeed if I get a collectible toaster out of you, and all she has to give up is a worthless movie poster or two."
"And Mr. Ross will be beside himself with relief if all he loses is the Acme Toastway and he gains two valuable film posters."
The pair shared a private enjoyment of their playful machinations, and then Robin asked, "I wonder if we should wrack them round one more agonizingly difficult negotiation, or extend it into another lunch."
At this suggestion of a follow-up date Kylie's heart missed a beat and she smiled cautiously, pleased with his offer but unsure if she should agree right away. Despite her reserve, she found herself adding, "Maybe we can find something else to negotiate."
Intended as a mild joke, the phrase came out as a risqué invitation, and she blushed. "I never would have guessed negotiating small appliances could be so fun."
"Yes, great fun," he agreed, and an awkward silence fell over their table.
The moment was broken by the arrival of the sugar-encrusted creme brulee, and a minute after that by Kylie's phone ringing.
"I told you to stop bugging me." Kylie whispered harshly, and Ross's voice was unapologetic. "There's some weird guy in an old hat following me," he said anxiously. "Does Robin have an accomplice?"
Kylie repeated his words for Robin's benefit, and commented, "Don't get too worked up. He's probably just a lonely guy who wants to ask you out."
"If he hits on me, I'll deck him and then throttle you," Ross fumed.
"For making you too attractive? Just decline in a very sweet voice."
"I should never have agreed to this," Ross muttered. "Did you get the T-20Z?"
"If you give up the Acme, we have a deal."
Ross's voice expressed relief and grudging respect. "So he bought it. Excellent."
Kylie closed the phone and then glanced askance at Robin, for the red-nosed beggar had returned to their table.
"Begging your pardon again, beautiful people, but I thought I should warn you that another sharpie has eyes for you—some old bat in a straw hat and purple scarf." Nodding slightly toward the craft fair entrance, he added helpfully, "Right over there, in big sunglasses. You have to watch out for birds like her—she'll fall right in front of you and start screaming you tripped her."
Robin and Kylie exchanged looks of suppressed amusement and Robin slipped their informant another bill in payment.
"Thank you very much," he told the beggar. "I have no idea why we're attracting so much attention today."
"Oh, I can tell you," the raspy-voiced man volunteered. "Couples in love are easy marks."
Realizing the beggar had expertly played this very phenomenon, Robin nodded in rueful acknowledgement and the beggar gave him a half-salute and a thin smile. "You two take care, and invite me to the wedding."
Kylie's blush deepened and Robin was rendered speechless for a moment. Clearing his throat, he declared, "It seems Mrs. Ross has made her interest in us a bit too apparent."
Kylie laughed, and with visible relief she said, "Let's give Mr. Alexia the glad tidings that negotiations have been settled."
Robin nodded and then added, "But we do need to arrange delivery of the goods. I insist on making the exchange with you—in person."
His pert companion squinted in mild amusement at his ploy. "You drive a hard bargain, but I accept."

Friday, August 24, 2012

Easy, cheap credit has created a fantasy world where everyone "deserves" everything right now, and trade-offs and sacrifice have been banished as unnecessary.

Debt offers a compelling fantasy: there is no need for difficult trade-offs or sacrifices, everything can be bought and enjoyed now. In the old days when credit was scarce and dear, buying a better auto required substituting 1,000 brown-bag lunches for restaurant meals: yes, four years of daily sacrifice.

Sending a child to college meant no meals out (or perhaps once or twice a year), driving an old car, no vacations other than camping, working overtime to make a few extra dollars, summer jobs for every teen in the family and a hundred other sacrifices and trade-offs. All too often, only the oldest got to go away to university; younger siblings had to sacrifice their education for the greater good of the family.

If the oldest sibling was fortunate enough to earn a decent salary after graduation, he or she sacrificed to pay for the education of younger siblings.

Trade-offs and sacrifices were the core of household finances for those families that sought to "get ahead" or purchase things that required substantial cash.

Abundant, cheap credit upended the incentives to make adult trade-offs and sacrifice consumption for future benefits. Why eat 1,000 brown-bag lunches when you can buy a new car for $500 down and "easy" monthly payments? Heck, you don't even need to pay for the lunches with cash; just charge them.

Want to go to college? Just borrow the money via student loans. Why scrimp and save when Uncle Sam will guarantee $100,000 in student loans?

Why choose between a lavish vacation, a year of college or a boat? Buy all three on credit.

This mentality has infected the entire nation and culture. Why should we have to choose between $600 billion military spending and $600 billion Medicare spending? Let's just borrow the $1.2 trillion every year to pay for both.

I personally know families that have no savings or assets to speak of, but every summer the parent(s) and kids travel overseas with little effort made to budget-travel. These families earn good incomes but the income is all blown in current consumption: the teens get daily Starbucks and a cafe-bought lunch, dinner is often a sit-down restaurant meal, and all the computer/gadgetry in the household is the latest and greatest: iPhones, iMacs, iPods, etc.

I also know young families who are "working poor," where the father earns less than $20,000 a year and Mom stays home with the two young kids--yet they own a much nicer and newer car than I do, and the Federal government gives them over $2,000 a month in cash benefits: $500 Section 8 rent subsidy, $600 in food stamps and $1,000 in free medical care.

As a self-employed person, I have to earn $3,000 a month to net the $2,100 this family receives every month, so it's like a magic full-time wage earner slaves away and gives this family his entire earnings.

Only there is no "magic worker:" the $3.8 trillion the Federal government distributes every year is two-thirds tax revenues and one-third borrowed.

To the degree that our government distributes $1.3 trillion in borrowed money every year, everyone receiving money from the Federal government is living off debt that draws interest and will never be paid.

Thus it is an artifice to say that a person collecting money from the Federal government is "debt-free": the debt they are incurring is simply once removed.

Credit leverages income. If $10 per month in disposable income can leverage $100 in debt, then if disposable income rises to $20 per month, debt can be doubled to $200.

Lowering interest rates increases leverage. If the interest rate is cut in half, $10/month can leverage $200 in debt.

We are now at the end-game of these two expansions of leverage: incomes are no longer rising, and interest rates have been cut to near-zero when adjusted for inflation (a.k.a. loss of purchasing power).

Relying on credit to fuel "growth" in everything only worked when incomes were rising and interest rates could be cut. Now that incomes are stagnant for 90% of the populace and interest rates have been slashed, there is no way to increase leverage.

Here is a chart of adjusted real income. Note that it has been stagnant for the "bottom 90%" for the past 40 years.

The savings rate has plummeted; the brief spike up in savings triggered by the global financial meltdown has already faded. U.S. households save a mere third of what they once put aside. Note that the savings rate is not broken out by income; the bottom 90% probably save very little, and the top 10% is probably responsible for most of the savings. So the "real" savings rate of the bottom 90% households is likely much lower.

Here is "total credit owed" in the U.S. If income is flat and interest rates already near zero, then where is the leverage for additional debt going to come from?

The answer is the game of relying on ever-expanding debt is over. You can claim phantom assets and income streams as collateral for a while, but eventually the market sniffs out reality, and the phantom assets settle at their real value near zero. Once the collateral is gone, the debt is also revalued at zero, and the debtor is unable to borrow more.

This is the position Greece finds itself in; the collateral and income steams have been discounted, the credit lines have been pulled, and so the reality of living within one's means is reasserting itself. Living within one's income (household or national income) requires making difficult trade-offs and sacrfices: either current consumption is sacrificed for future benefits, or the future benefits are sacrificed for current consumption. You can't have it both ways once the collateral and credit both vanish.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, John and Grace ($50), for your immensely generous contribution to this site-- I am greatly honored by your longstanding support and readership.

Thursday, August 23, 2012

The central illusion of Central Planning everywhere is that distributing insolvency will somehow magically create solvency.

I recently received a brief but powerful summary of the global financial system's intrinsic instability and unsustainability from correspondent Ray W., author of A Change in the Weather.

One key point is that spreading insolvency (debts that will never be paid back, debt based on totally phantom assets) over a populace does not somehow conjure up a solvent financial system or State. Distributing insolvency only destroys the last remaining islands of solvency in a bankrupt world.

The entire global financial "recovery" engineered by central banks and Central Planning is based on the absurd notion that if we spread unpayable debt over the entire body politic (be it a nation or regional entity such as the European Union) then that distribution will somehow make the debt payable and the phantom assets real.

The debt remains unpayable and the assets (collateral) remain stubbornly phantom. As for adding more debt (selling Eurobonds, Treasury bonds, etc.), please note the diminishing return on additional debt: it is now negative.

Here is Ray's commentary:

Not only the US Federal Reserve, but the EU collectively and its members individually are blowing another bubble with artificially suppressed interest rates inducing a flight to equities. It may not look like a bubble because values are climbing so slowly and uncertainly, but that is just an indicator of the structural weakness and exhaustion of petrocapitalism. In terms of thermodynamics, the engine is just too big to run on the same fuel without serious retooling.

The debt from the past three decades of bubbles--finance, dot-com, real estate--is still largely unrepaid, and won’t be. Whether nefariously intended are not, the current payback scheme, focused as it is on sanctity of contract, is to keep the bond holders from absorbing any of the losses (the Greek haircut notwithstanding). Modern economics is all about trust, so if contracts are no longer reliable, then the whole system--which depends 100% on credit--functions much less efficiently and much more expensively. It begins to look medieval.

The hope is that the states can titrate these losses into the general population, where they will be diluted and absorbed like pollution. But like climate change, we’ve simply reached the saturation point. The world can no longer be a sump, economic or atmospheric.

Thank you, Ray. Diminishing returns define the flailing financial system: the return on petrocapitalism is declining (how many barrels of oil or equivalent does it take to extract and process one barrel of shale-derived oil?), the return on more debt has turned negative, the yield on "saving" bankrupt States is marginal, and so on: spreading insolvency to the taxpayers does not magically create solvency, it only distributes insolvency to every nook and cranny of the economy.

All the debt remains painfully real; it is only the collateral that is illusory.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, Cudick A. ($50), for your stupendously generous contribution to this site-- I am greatly honored by your steadfast support and readership.

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